Economic Productivity Takes a Nose Dive

Image credit: Wall Street Journal

Image credit: American Action Forum

More bad news on the economic productivity front. From today’s Wall Street Journal: “Non farm business productivity — the goods and services produced each hour by American workers — decreased at a o.5% seasonally adjusted annual rate in the second quarter as hours worked increased faster than output.”

It was the third consecutive quarter of falling productivity, the longest streak since 1979, and it caps an abysmal growth rate averaging 1.3% between 2007 and 2015.

Whatever could be the cause?

Could part of the explanation be that, according to the American Action Forum, the Obama administration has issued 600 major regulatory rules costing $1.4 billion on average, or about $743 billion overall, during its seven-and-a-half years — with more to come?

Nah, that can’t be it. It’s all George Bush’s fault.

— JAB

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22 responses to “Economic Productivity Takes a Nose Dive

  1. I’ve heard regulation cited as brake, but also the lack of capital investment by business–they’re hiring a few more bodies, but not upgrading the complement of “machinery” to optimize efficient production.

    This is starting to feel a lot like Japan.

  2. the regulation stuff is more Conservative article-of-faith blather than anything truly substantiative.

    it’s like Tax cuts – without cutting spending or even cutting spending but not acknowledging that that spending also was going into the economy.

    ALL OECD countries have regulations – and other OECD – more than us – and OECD countries including the US are STILL the most productive countries in the world – and one would think that if regulations were the problem that countries with less regulations would out-compete us.

    then the partisans want to blame Obama but never really do an honest comparison with prior administrations…

    … because they say the ones under Obama are “more significant” but when you ask them to name the 5 most significant – and their “costs” – what do you get?

    Regulations provide jobs – that’s the truth.

    one might argue that a storm pond or a anti-pollution scrubber are not “productive” but there is no doubt that machines and labor were required to construct both.

    When you see USDA on your meat – you’re looking a a job that inspects meat – that, in turn, protects you from going to the hospital with a deadly disease from a diseased animal that was slaughtered.

    regulations are what protect all of us from bad drugs, insurance scams, a polluted Chesapeake Bay…

    so when you ask the anti-Obama, anti-regulation folks to name the dirty dozen of new regs – what do you get? blather…..

    • “ALL OECD countries have regulations …”

      And look how their economies are doing!

      • and when it is suggested that 3rd world countries should be
        “better” – you guys say “No.. they don’t have “rule of law”!

        😉

        I love it. Even the anti-regulation folks squeal when thinking about living in a 3rd world or developing world country… where “regulation” is indeed way less … but productivity just totally sucks also.

        no matter – the anti-regulatory folks say the US could “so much better” .. if only we had far fewer regulations like 3rd world countries!

        ya’ll live in LA LA Land on this… regulations are what protect you Jim – like from a company selling you Long Term Insurance then reneging on it. You WANT -THAT regulation but the right-wing folks CITE that SAME regulation as making Long-term care insurance as MORE EXPENSIVE.

        right? well yeah…. if you force these companies to actually pay off – it’s going to be more expensive than if they just took your money and ripped you off! Your “needed” regulation is another right-wingers “bad bad Obama regulation” !!!!

  3. here’s what WSJ said:

    ” Some economists have seen the slowdown as reflecting a secular trend of more modest efficiency gains from new technologies compared with past advances. Others have placed the blame on persistent aftereffects of the financial crisis and 2007-09 recession, and predict it will rebound in coming years. And some have argued productivity is being mismeasured and could be higher than commonly thought.”

    not a word about regulation… even though WSJ has never been shy about their distaste of them.

  4. all kinds of “economists”… but the ones who blather about regulation almost never provide the “goods”..

    For those on the right- it’s a”belief” that does not need “proof”.

    and when you ask them to actually name actual regulation – and give a cost/benefit that shows the cost is more than the benefit – they run away.

    • Larry, I am not sure which search engine you are using, but when I type in the phrase “regulation drag on the US economy” into Yahoo, I get several pages of articles on the subject. Not too many economists are cited, but there are a lot of business owners, CEOs, and the like cited in the results. I will grant you that I couldn’t find a cost/benefit analysis cited, but given the penchant of the current administration to fudge the cost/benefit numbers in its favor, I am not sure that anybody has a solid set of cost/benefits analysis, either pro or con for any given rule.

      • @JNL – oh I do too – and 99% of them are from right-leaning “true believers” … and/or organizations with agendas …

        I say AGAIN. Every regulation has a cost benefit.

        and if the benefit is zero – then I’m opposed to it – as long as that zero is a TRUE zero and not some ignorant “belief”.

        from that point – I’d support the removal of ANY regulation that truly fails an honest cost-benefit – and so I’d expect the folks who make that argument to – … make that argument with numbers on paper.

        Lets see a dirty dozen for instance.

        you say cost/benefit not done. Not true. Most every regulation has such a cost benefit done by the govt.

        That’s a good starting point for opponents… if they disagree with the numbers.

        but you can’t be opposed to regulation with no data to support you unless you just want to be a partisan zealot… so the ones that are -earn that label.

  5. On its face the number looks awful,but we must wait for the next print in this series to be sure this was not an outlier. Employment seems strong while GDP growth is sluggish.Things are very strange at the moment,and a lot of real economists are trying to figure out what is going on.

  6. Les- Part of the reason that employment seems to be strong is that the overall workforce participation percentage is steadily dropping. Fewer people in the workforce means that the unemployment rate stays low. However, I remember the days (in the oughts) where a new job creation rate of less than 300K meant an increase in the unemployment rate. Today, a monthly job creation rate of 275K decreases the unemployment rate. See this chart for an illustration of this problem. http://data.bls.gov/timeseries/LNS11300000
    Also, as Jim noted above, this is the 3rd consecutive quarter of the productivity rate dropping. To me, that is a trend, and not a good trend.

    • @JNL – job creation vs unemployment rate..

      wouldn’t that involve quite a few moving parts and a static number of jobs created would only be for one point in time?

      second – this trend , which I agree, IS troubling – is not just the US alone….. it involves other nations, other govts, with differing policies than us… so this is a world economy issue……AND it HAS happened BEFORE in 1979!!!

  7. A few notes:

    A.) Automation and demographics are playing a role.

    B.) There are over 3 million skilled positions that remain unfilled in this country. That’s the biggest drag on American economy. Why are those positions unfilled?

    Two main reasons. 1. The failure of American community colleges to attract students. Despite very low tuition, they just aren’t attracting and graduating students. I know that the local community college (PVCC) has seen enrollment drop 2 straight (might be 3) years. I have read similar stories in national publications. And worse than enrollment is completion rates. This is one of those public policy issues that is important, but it is never covered.
    Community colleges offer the training that could fill these skilled positions at a very low cost, but it’s just not working for some reason. It would be interesting to know why.

    2. Lack of mobility. People in rural areas (especially in Appalachia) simply refuse to move. The jobs are no longer there. Thus those people are unemployed or very underemployed. The Post ran a good series of articles about West Virginia a few years ago about the drag this refusal to move places on the American economy. I have no doubt it is hurting productivity as well. I believe Steve Haner put it best in a post several months ago about his advice for Southwest Virginians: “Move!”

    C.) I don’t doubt that regulations may be playing a role. But I’d be much more convinced of their primacy if there weren’t so many skilled vacancies in this country.

    • CR – good to hear from you again!

      The automation point is counter-intuitive.

      If 9 friends and I work in a manufacturing plant, we work 10 hour shifts and we create $100 of output then we have a productivity of $1 per hour.

      A new machine comes to our plant and 4 of my friends are laid off. The remaining 6 workers now make $120 of output in a 10 hour shift. We have doubled our productivity to $2 per hour.

      If my friends don’t rejoin the workforce my friends hours of work never get into the denominator and productivity has doubled.

      However, what if my 4 laid off friends get new jobs where they work 10 hour shifts but only create $10 worth of output? That’s $.25 per hour of productivity.

      Even with the disruption from automation the 10 of us now create $130 worth of output rather than $100. We’re all still working 10 hours per day. Productivity has gone up.

      But ….

      We all earned $.50 per hour working at the factory. Total wages were $50 per day when all 10 of us worked at the factory.

      Once automation came, the factory workers that were left had more challenging jobs and earned $.75 per hour but the 4 rehired people only earned $.125 per hour. That’s total wages of $50. Wages are stagnant.

      The four people making $.125 per hour can no longer afford the goods produced by the factory. The factory owner, facing decreased demand and relatively high labor costs, moves the factory to China. Now, all 10 of us are making $.125 per hour and producing $.25 of output. That’s a total of $25 per day of output from our combined 100 hours per day of work.

      Productivity is now 1/4 of what it was when we were all working at the factory.

      A machinist creates more output per hour then a person mowing your lawn. When the machinist loses her job to automation and becomes a lawn mover her productivity falls.

      The inescapable conclusion from this line of logic is that median wages per hour in the United States is destined to fall as productivity continues to decline.

      Real GDP grew in 1979, it shrank in 1980.

      The start of the Obama Recession is being foretold.

      • re: ” Real GDP grew in 1979, it shrank in 1980.

        The start of the Obama Recession is being foretold.”

        I don’t know that real GDP did grow in 1979 – it was pretty anemic…

        but what exactly can ANY POTUS do – to harm or spur the economy?

        this is like the argument spouted by right-wing folks that say the deficit and debt is the worse it’s ever been under Obama!!!

        well tell me who determines spending?

        the bigger problem here is that we have way too many folks that are way too ignorant and partisan and who find it easier to “blae” someone than truly understand what forces are effecting the economy – and you cannot begin to address those things – until you put your little boy toys away and truly understand the forces in play – and things we can really do about it – and good luck on that with the current crop of elected cretins in Congress who hate Obamacare but haven’t a clue what they’d do instead – much less agree on a path, much less immigration, regulation or the economy. It’s one huge Clown car.

        • Some presidents can cross the aisle and get things done. Kennedy could. Nixon could, for a while at least. Reagan’s work with Tip O’Neil is the stuff of legend. Obama couldn’t cross the aisle. Trump will be standing in the aisle with hostility from both sides. Hard to say with Hillary. She is totally and completely untrustworthy. However, she may be shrewd enough to negotiate with enough of the GOP to get some things done.

          Presidents, working with their own party and select members of the opposition, have a lot of power. The “presidents have no power” nursery rhyme is being chanted by Democrats in an attempt to support the lackluster (at best) presidency of Barack Obama.

          • Cville Resident

            DonR,

            Very good points about productivity. I note that the domestic equity markets all hit record highs yesterday. Capital trumps labor.

            Again…the 21st century is going to be the century of capital. Labor is being devalued on a daily basis except for the top 10% of intellects.

            The best public policies for the 21st century are to invest more in higher ed (at least give kids a chance to be in the top 10% of intellects), a universal basic income, and provide a regulatory environment that allows entrepreneurs to thrive.

            No matter what we do, the economy is now structured for the top 10% due to technological advances. Public policy needs to reflect that. People who blather about unemployment, labor productivity, etc. are living in a world that no longer exists. The true metric for a locality, state, or nation is how its top 10% is doing in terms of productivity and innovation. And states and localities need to do whatever it takes to attract that top 10%. I don’t necessarily like it, but I’m a realist. That’s just the way the world now works.

  8. CR has, as usual, some real intelligent insights rather than anti govt conspiracy theories!!!!

    The 21st century DEMANDS higher and higher levels of knowledge and skills and if you don’t get those skills – you ARE INDEED – NOT going to be “productive”.

    Why do kids NOT go to Community College?

    part of it is that our schools are not graduating kids who are CAPABLE of college-level learning.

    1/3 of kids who do go to college – have to take remedial math and language because they’re not even capable of 101.

    These are the kids who GO – they in the upper academic tiers of the high schools. There’s a whole other group that are even lower in their academics… and would not make it even with remedial work because they are so far back.

    Finally on the refusal of the poor to move (assuming they had a good education – which is probably not a good assumption) – Brookings published a paper that claims it’s because urban areas no longer prioritize affordable housing for poor rural who might move there for work.

    WHY HAS REGIONAL INCOME CONVERGENCE DECLINED?

    Historically, much of the convergence in income across states was driven by the migration of labor from poorer states to wealthier states. This migration held down wage growth in richer states and boosted wage growth in poorer states. This historical pattern was disrupted by increasingly strict land use regulations. Regulation boosted housing costs in richer states so that migration was no longer an attractive option for low-skill, low-wage workers.

    https://www.brookings.edu/research/why-has-regional-income-convergence-declined/

    I don’t know if I buy it or not – but it’s now “out there”.

  9. re: ” the Obama administration has issued 600 major regulatory rules costing $1.4 billion on average, or about $743 billion overall, during its seven-and-a-half years — with more to come?”

    right….. this would be like – how much lead can be in drinking water…. yep – that sure does “cost” money – no question about it.

    or North Carolina opposing using EPA standards for hexavalent chromium in well water – next to coal ash sites….

    every regulation has two sides and every regulation has a cost and a benefit but don’t tell that to their neanderthals who see regulation as a restriction on their own property rights!

    like I said before – how about the anti-regulation folks do two things:

    1. – provide their own cost-benefit for the regulations they disagree with

    2. – compile a list of the top dirty-dozen so we can see exactly what they are blathering about… and actually decide if they are right or just full of bull crap – per usual.

    • Larry, by your logic, with all these wonderful cost-effective regulations that are being enacted, the U.S. ought to an incredibly prosperous paradise right now! What went wrong? Is it still George Bush’s fault?

      • Jim – compared to what? India or Bangladesh or some other gawd forsaken places with far fewer regulations?

        According to YOUR logic – you think that if we are more like countries with less regulation that we’d be even better than we are now – in comparison with other lower-regulation countries?

        You guys say 3rd world is “bad” because they don’t have “rule of law”.

        what do you think is “rule of law” if not – regulation ? Do you think “rule of law” is some sort of magical thing that just appears in 1st world countries by luck?

        you know – the kind where the govt makes sure the insurance company that sells you insurance – actually pays benefits or the milk you drink is not infested with disease or the tires on your car actually won’t blow out at 60mph, etc?

        All I ask if for you guys to CITE the actual – specific regulations that you say are “bad” as opposed to this generalized ideological blather than emanates from you over and over – which is more of a “belief” system than anything real.

        If you guys are truly serious – you list the regs that you say are “bad” and you actually do present real evidence that shows that they actually do have a NEGATIVE cost-benefit. That means you actually have to look at the benefit side and not count regulation as alway an economic subtraction -no matter what.

        You guys lose all credibility when your argument works that way.

        If you really do “believe” something – you get the evidence and justify it or just admit you prefer to live in LA LA Land.

        How about you list the top 3 least regulated countries in the world that do have the “rule of law” that you want – and demonstrate how they actually do better as a result?

        seriously – what are the best countries in the world with less regulation, good rule of law – and better economies?

        I suspect the only place such countries are – are in your mind… right? what we “could” be “in theory” – right?

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